The upheaval that Covid-19 is causing in people’s lives around the world is wreaking even greater havoc in the global economy.

The impact will be far larger than the damage caused by the Global Financial Crisis. The remedies will have to be much faster and even more unorthodox, ambitious and far-reaching.

Quite simply, the virus is causing a dramatic slowdown in the perpetual money machine which is the global economy. Incomes enable people to consume, which stimulates production, which generates income for more consumption – a money-go-round generating some $150 trillion a year in global GDP.

The GFC was only a breakdown in the financial system, the lubricant of the economic machine.   This pandemic, though, is causing the economic machine itself to falter.

In response to the GFC one decade ago, it took Herculean effort by central banks and governments to fix the system. Austerity measures and other tools caused collateral damage to economies and societies.

The GFC caused only a brief drop in global GDP, although some countries, mainly European, suffered more. Even so, between 2008 and ‘10, government debt of the G-7 economies rose by 10 to 25 percentage points as a share of collective GDP. Government deficits worsened by four to 10 percentage points. Much of that was caused by lower GDP, which reduced tax revenue and increased spending on unemployment benefits and other measures. Fiscal stimulus was a far smaller cost.

But as I noted already, this pandemic is causing the economic machine itself to falter.

The Chinese economy is thought to have contracted by some 13% in the first two months of this year; JP Morgan’s latest forecast is for a 16% contraction in the US economy this year; and unemployment could reach 20% in the US and Europe.

The first shockwaves have hit here.

On Monday, Auckland Airport served 44% fewer international passengers than it did on the same day last year. In the week to Monday, international passengers were down 25%; Air NZ’s revenues this year could plunge from $6 b.to $1b.; the NZ Hotel Owners Association says its members could, in the most pessimistic scenario, lay off some 40% of staff because of plummeting occupancy rates.

Nobody in the world knows how long and severe lockdowns will have to be to stifle the virus and to buy time to develop a vaccine and distribute it widely. But even the shortest, easiest disruption is still far greater than the conventional economy, aided by conventional remedies, can endure without significant damage.

As Prof Pierre-Olivier Gourinchas (University of California, Berkeley) points out, if virus-containment measures reduce economic activity to half its normal level for just one month, and then to three-quarters for two more months, year-on-year growth will fall by 10 percent.

The NZ economy, like those of other developed countries, is largely driven by its service sectors – retail, wholesale, distribution, hospitality, travel, entertainment – rather than manufacturing sectors. But we’re even more vulnerable because of our large international tourism sector, which until the virus hit was our biggest earner of foreign exchange.  Our government has announced $12 b. of measures in its first support package for the faltering economy. For example, wage subsidies will help small companies keep people employed. But they need to be for all companies, and to be closer to actual wage levels to minimise the drop in consumption.

The next step must a Universal Basic Income, as Bernard Hickey argues: https://www.newsroom.co.nz/corporate/2020/03/19/1086362/what-a-covid-19-coalition-could-do-with-qe

But that would still fall far short of filling the gaping financial hole companies will suffer from a steep drop in economic activity. Only deeply unorthodox remedies, rapidly applied, would work. Here are two which have surfaced already in the US:

‘Government as last resort’

The US government should step in as payers of last resort, argue Emmanuel Saez and Gabriel Zucman, (University of California, Berkeley). The payments would cover wage and maintenance costs for businesses facing shutdown. This would be “a new form of social insurance, one that directly helps both workers and businesses.”

Their analysis of the US economy suggests that a nationwide lockdown would cause a 30% drop in economic activity in the US over the next three months, leading to a 7.5% drop in annual GDP.

But if the government compensated companies for 60% of their labour costs and half their operating costs (the latter would be down from pre-crisis levels because of reduced activity), the cost would be about 3.75% of GDP, financed by an increase in public debt.

The programme would be limited to three months, assuming the worst of the epidemic was over by then. With damage to employment and capacity reduced, the economy would rebound far faster, resulting in a greater pick up in government tax revenues.

“The direct output loss from social distancing measures would in effect be put on the government’s tab, i.e. socialised,” they write. http://gabriel-zucman.eu/files/coronavirus.pdf

Government ‘bridge loans’

Alternatively, the US government should offer every American business, large and small, and all self-employed people a no-interest “bridge loan” guaranteed for the crisis and repayable after over five years, proposes Andrew Sorkin, one of the New York Times’ leading business journalists.

https://www.nytimes.com/2020/03/18/business/dealbook/coronavirus-economy-bailout-plan.html?action=click&module=Spotlight&pgtype=Homepage

The only condition is that they employ at least 90% of the workforce and at the same wage they did before the pandemic. He also proposes that companies’ existing banks administer the programme since they already know their customers.

His rough estimate of the volume of loans, assuming a three-month peak to the crisis, is US$10 tr., equivalent to about half of US GDP. Assuming 20% of the loans wouldn’t be repaid because of business failures or avoidance, the cost to US taxpayers would be well over US$1 tr.

“But with interest rates near zero, there is no better time to borrow against the fundamental strength of the US economy, spend the money and prevent years of economic damage that would ultimately be far, far costlier.

The alternatives being proposed may be worse — because the size of the bailouts may be too small and come too late, and because the politics of targeted bailouts at specific industries and businesses would create a morass of anger and distrust.”

The special pleading has already begun. The US airline sector is already lobbying Washington for some US$50b. of emergency support; and on behalf of US aerospace manufacturers, Boeing is pushing for US$60 b. in loans and grants.

Some people might not stomach such support. After all, US corporates have led the world post-GFC in piling on low-interest debt to buy back their shares to supercharge returns for their shareholders.

American Airlines is one of the most egregious examples. In 2015, it reported a US$7.6 b. profit, an astonishing rise from US$500 m. in 2007 and less than $250 m. in 2006, thanks to long pay disputes with its staff, cramming passengers on its planes and charging excessive baggage and other fees. The multi-billion dollar profits kept pouring in over recent years. “I don’t think we’re ever going to lose money again,” Doug Parker, its chief executive said in 2017.

Meanwhile, American boosted its share price by spending more than US$15 b. during 2014-20, buying back its equity. It also shrank its cash reserves and borrowed heavily to finance new planes and to fit more seats to old planes. In 2017 analysts warned it was running the risk of default if the economy deteriorated. But the airline just borrowed more.  Its current debt is nearly US$30 b., nearly five times the company’s current share market value.

This is not an isolated example. In 2018, the Bank of International Settlements, the central banks’ central bank, released damning analysis of what it called ‘zombie companies’ – those that earn too little to cover even their interest payments, and survive by issuing more debt.  https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf

This BIS video offers a summary of its research.   https://www.bis.org/publ/qtrpdf/r_qt1809g.htm

The BIS estimated 16% of all publicly-traded companies in the US are zombies, and more than 10% are in Europe. Indeed, US corporate debt is now equivalent to 75% of US GDP (a record), and higher than before the GFC. Worse, the average US private equity firm has debt equal to six times its earnings. That’s twice the rate that defines a junk bond.

These are just some examples of the post-GFC corporate strategies which have generated unbelievable wealth for some investors.

Covid-19 is creating economic mayhem which will purge some of these excesses.

But once again, governments and citizens will bare these socialised losses. This is the price we shall have to pay to minimise the depth and duration of depression.

That’s acceptable if, this time, we fiercely defend society’s interests over special interests.

Rod Oram is a nationally-known columnist, who gives weekly interviews on RNZ’s Nine-to-Noon, and writes regularly for Newsroom.  He is adjunct professor at AUT and a founding member of the Centre’s Board.  This column is adapted from a recent contribution to Newsroom.

In this final part, I wrap-up my thoughts on the fundamentals of university reform consistent with, and responsive to, the emergence of the global community.

Having argued to date that there is no magic sauce, no equation, no single road-map to university reform for the global age, I nonetheless maintain that reform does not, cannot, occur in the absence of design.

Ultimately, my vision of the global university in the 21^st century is one that sees institutions leveraging the strengths of our current paradigm for the co-construction of our common future.

As such, while a strong employability focus acts to address one meta-narrative, there exists a plethora of other imperatives that cut to the core of nurturing future-focused citizens.

And all this in the era of COVID-19.

Yes, our graduates absolutely need to be employable on graduating, and our industries need educated employees to drive their innovation and development.

But our graduates also need to actively engage in reshaping our societies to meet our local and global challenges – living within the planetary boundaries, stabilising the climate, re-establishing strategic stability, making nuclear weapons illegal, handling global health pandemics, dialoguing for common trust among political ideologies and religious faiths.

Despite observing extraordinary innovation in the US tertiary sector during my time there as an Eisenhower Fellow, it was clear that work still needs to be done to position universities at the fulcrum of our collaborative enterprise in humanity’s progression towards peace, prosperity and well-being.  For me, the ‘university of the future’ is one that is connected to the local, national and global community through our collective enterprise of discovering solutions to our mutual challenges.

And oh – we give a few degrees out along the way. We are not degree factories; we are here to help set and actualise the normative framework of society in the development of a closer, more secure, understanding, sustainable and prosperous future.

We need universities to help us ask and answer the ‘why’ questions. Universities can do this this by constantly challenging our perceptions of the future through an increased focus on collaboration in research and teaching so as to empower all walks of society in our mutual responsibility of creating and disseminating new knowledge.

Universities ought not, therefore, see themselves as the sole creators and disseminators of new knowledge – as has been their tendency. They need to position themselves as collaborators and facilitators in the collective creation and dissemination of new knowledge.

With this vision, here are my recommendations on the fundamental characteristics of the university of the future.

Principles, Vision and Plan (Inspire, Lead & Explore)

The university in the 21^st c. will not be an accidental educator conducting its business the way it does, because it is the way it always has.

It will have clear principles, it will articulate an inspirational vision, and it will work to a plan. In the facilitation of change (which is, in reality, a never-ending condition), it will apply its principles, have the flexibility to modify and evolve its vision, and found its plans on the notion of agility.   Institutional principles and vision will be informed by the meta-narratives of the time such as sustainability, equity, equality, social enterprise and entrepreneurship.

More specifically, the university will incorporate the themes of student success, equality of access, collaboration and partnerships, and collective problem solving and innovation, within both teaching and research.

This will likely become manifest in commitment to diverse academic offerings – including systems thinking, a commitment to life-long-learning, and digitally added pedagogy if not the possibility of digital delivery by distance. The global health crisis of 2020 will ensure fundamental change in this direction, whether we choose it or not.

Similarly, in research, such principles and vision will likely focus on collaboration, ‘grand challenges’, and a mix of blue-sky research and the creation of patents and commercialization of innovation.

Ultimately, universities will need to be proactive in their community leadership and should embrace their position as change-agent in contributing (if not leading) community discussion on the normative framework for our society in these times of rapid change and development – a discussion that is sorely lacking in our communities, leading to an inability for communities to disagree well, and forge unified pathways to address communal problems.

Budget & Structure (Ensuring structural agility)    

In order to inspire, lead and explore, universities will need to ensure they have sufficient agility to move, and the drivers and incentives in place to feed the creativity of academics, professional staff and students alike.

There is no ‘one-size-fits-all’ of university operation – the strength of our institutions is that we are genuinely ‘multiversities’. Diversity is to be encouraged, and in fact nurtured, albeit within the envelope of clearly articulated and agreed principles, vision and plan.

To effectively support staff and student innovation, the university in the global age will need to ensure authenticity in its mission, and not regard its principles and vision as a mere branding exercise in which a new batch of modern managers and corporate marketers clothe old structures in new garments.

Tangible action will be taken to encourage collaboration in both research and teaching. Diversification in the internal budget mechanisms of institutions will need to occur to discourage hording of students and any nervousness toward collaboration. Cross-subsidization will always be a reality in a university. Business schools will likely always contribute more than science faculties. Tension will always exist, but a general balance of fairness and equity needs to occur in which innovation and development is rewarded and the playing field of competitive funding is at least transparent, if not ‘fair’, in light of identified priorities in spending.

As with the mechanisms of internal budget allocation, there is no magic formula in terms of structure. However, it is clear that structures will need to change. Future universities will not be bound to the traditional Newtonian approach to disciplines operating in isolation to one another and grouped together under outdated constructs such as ‘Humanities’, ‘Sciences’, ‘Business’, ‘Health’ and ‘Creative Arts’.

The addressing of ‘grand challenges’ and greater connection with society (social, industry and governmental) will require the rebirth of multi-disciplinarity and will result in the extinction of many contemporary degrees (and disciplines) and the creation of new areas of research and teaching interest based upon systems thinking and complexity theory. These latter approaches will also occur at scale – something that frustratingly eludes contemporary institutions.

Academic Decision Making

For many, our academic decision-making structures seem to strangle academic independence and creativity. Rather than research & development centres concerned with the creation, development and maintenance of a dynamic future-focused teaching and research curricula, our academic boards or faculty senates are often myopically concerned with ensuring compliance and regulatory adherence.

The future university will flip its academic decision-making processes by genuinely resourcing and prioritizing the academic boards as the institution’s centre of research and development. These boards will likely be small, (12-15 members), with members appointed on merit and from all levels of the academic, professional and student body. They will be charged with the authority to co-create the academic agenda for the institution in partnership with senior management.

Furthermore, it will act to empower the important aspects of institutional operation such as risk management, health and safety, and business case creation to be ministries of ‘how can we work together to make this happen’.

Innovation & Collaboration

In establishing themselves as collaborators in the creation and dissemination of new knowledge, the university in the global age will wed its fate to its community. University communities include staff and students as well as stakeholders, civil society and even the planet. Such universities will co-develop with local government and industry, and will plan to ensure campus as a community resource.

In other words, they’ll leverage public-private partnerships to build infrastructures of significance to their region.  The university will seek to join forces with local government and industry to lobby for an international airport. A maligned regional town to avoid? The vitality of the town will be recognized as inseparable to the fate of the university.

They’ll collaborate with local health providers to win lucrative construction grants and develop new approaches to health care delivery in the region. They will co-ordinate with local government on rejuvenation projects, public transport and housing initiatives, improve water quality, recycling and wider education initiatives. The future university will make it a badge of honour – perhaps even a principle – to stand ‘with, for and by’ their community in everything they do.

Management will seek to seed projects and innovation within a supportive and encouraging environment – rewarding success and accepting failure. They will be clear on their risk tolerance, and in what circumstances risks ought to be taken. They will not merely seek to establish an entrepreneurial hub or innovation lab (“because the competition has one and we must keep up”).  It will seek to nurture the philosophy of innovation across the entire institution.

Conclusion

I very much enjoyed my travels across the US as an Eisenhower Fellow. I hope you have found my comments interesting and provocative.

I have a vision for the tertiary sector – not merely for New Zealand but the globe. My vision was tried in the fires of the Christchurch earthquakes, and inspired by the leadership of students from whom I learned a great deal on effective community engagement.

As a planet we have numerous imperatives. As people, we have near unlimited capacity for innovation and development. Universities, I believe, sit at the intersection of these realities – if universities cannot leverage their incredible tradition and strengths to do something great for all humanity then I am not sure any sector can.

I am up for the challenge, and I very much look forward to playing a part in our discussion on the development of the future university in the global age.

Prof Chris Gallavin is Deputy Pro-Vice Chancellor at Massey University, and a member of the Centre’s Board.

Last month, I offered the view that universities in the emerging global age need to conceptualise themselves as centres of collaboration for the collective creation and dissemination of knowledge.

I believe that the future of higher education (HE) is, actually, remarkably bright. I feel, in fact, quite ‘jealous’ of our youth, as we live in what I believe to be, perhaps, the most exciting of time in human history.

Global problems abound of course, but with that come opportunities to do things differently for the advancement and well-being of humanity; indeed, all life with which we share an existence on this planet.

In this third article, I highlight the nature of transformational change in HE – a sector I feel privileged to be globally numbered among, as it transforms in collaboration with other sectors, to change the lives of entire communities and, as a result, our entire world.

Let me highlight some leading examples.

The most important precursor to transformational change is the existence of a consensus over the need for such change.

The challenges for HE, which I identified in Part I are, for some among us, simply not challenges at all. A $30 bn. endowment fund tends to influence the view one has about problems, challenges and opportunities.

Other institutions may recognize similar challenges, yet actively address them by focusing on their traditional methodology and approach to teaching, research and community contribution. Our university system has been around for many centuries, after all, and slow incremental development has served us pretty well, so far.

There is, of course, no ‘one-size-fits-all’ approach to the modern university. It’s a misnomer to believe that without radical and revolutionary change, all HE institutions will tumble around our feet.  That is, I suggest, an unbalanced view.

Change in HE is not all about the preservation of our institutions. It is also about contributing to a collective approach in meeting community and global imperatives, in light of the fact that failure to address such imperatives will have disastrous consequences for humanity.  The current global pandemic emerging is the latest, and will not be the last, example.

We face, now, some imperatives which mean that, as a sector, we need to change – some institutions a great deal; others perhaps less so. The planet and humanity need our sector to embrace the truly great challenges before us, so as to ensure that we stand prepared to survive into the future.

I believe that real leadership in tertiary education requires this:

• acknowledgement of the imperatives of our times,
• understanding of the exact position of our individual institutions,
• recognition of the ability of our institutions and communities to move, and
• commitment to push the parameters of our comfort faster than that imposed by the imperatives.

I leave the ‘calls to action’ to those best-placed to have their voices heard.  For the rest of us, it is important to lead our communities on achievable transitions that successfully clothe the ‘revolutionary’ as ‘evolutionary’, resulting in tangible, sustainable and effective change.

Here, I would like to focus on particular aspects of transformational change that I encountered within the US education sector as part of my Eisenhower Fellowship. I structure these around the three elements of my project, enhancing engagement by leveraging digital and disruptive innovation, for the advancement of the imperatives and meta-narratives of our time.

Engagement, Recruitment & Retention 

Much has been written on the role of universities in perpetuating inequality and class divide. Predominantly, HE is expensive and inaccessible. Generally, we subscribe too readily to ‘human capital theory’ where we equate education with professional employment, with social mobility, with prosperity.

The system however, is far from linear and is more organic. For education to be truly liberating, universities need to be more cognizant of the organic factors that lead to community well-being, and shy away from a more binary system of analysis.  To focus first on mere wealth production – income from capital investment as outgrown wealth-creation from employment in the US, meaning societal, cultural and family position – is proving to be an increasing important factor in wealth-creation over employment.

A myopic concentration on employment as the only factor in the creation of wealth for example is, therefore, problematic for universities. Undoubtedly, education does equate to more and better employment outcomes, but it also provides many other important and tangible contributions to a healthy and wealthy society.

Examples of colleges that are starting to recognize this, and which are actively engaging communities in different ways to ensure universal student success, include Georgia State and Arizona State. In their use of student analytics, and from a foundation of institutional flexibility, these institutions seek to ensure student success through institutional movement rather than a reliance on a traditional deficit model in which student difficulty is seen as a problem with the student.

As a result of their efforts, their figures of student success across ethnic and class divides are most impressive. If colleges are to deal effectively with engaging all quarters of our communities, when swathes of professions are rendered extinct over the coming two decades, then significant advancements need to be made in engaging the disenfranchised now.

A recurring theme across the institutions I visited in the US was that we in HE need to learn how to engage more effectively with our communities. Surprisingly, universities are not hardwired to play nicely!  Our tendency is to tell communities (including industry) what we think they need. When we finish with them, we often leave them hanging in limbo, annoyed at what they believed was to be an ongoing and genuine partnership.

As an initiative to train their institution to effectively engage and disengage with the external community, I was impressed by the Gephardt Institute for Civic and Community Engagement at Washington University St Louis. They are doing credible work, built upon a focus on civics within the undergraduate academic curriculum. Seek them out for their wisdom and expertise in the area of collaborative community engagement. Staying with St Louis, I was also most impressed by Cortex in the heart of St Louis. Ravished by the Global Financial Crunch, the economy of this great city took a significant battering.

While innovation hubs are certainly not new or particularly novel, I found the foresight of Washington University St Louis, and its partners in establishing Cortex a number of years ago, both bold and visionary.

Digital & Disruptive Innovation

Here I focus on two aspects: digitally-enabled pedagogy and university funding.

There is a great deal of digital-teaching innovation in operation in the US.  But the success of Southern New Hampshire University, with their distance programme, is something to behold. With 90,000 online students (and growing) plus a sophisticated system of student support, analytic-driven intervention and guidance, and tailored career guidance, SNHU has shaken the traditional model of educational delivery.

Of course the EdX initiative of Harvard and MIT, with its 140 international partners, is similarly impressive, albeit with more work required to find a financially-attractive platform for the Humanities courses they provide.

Disruptive innovation is strongly evident at the borders of traditional HE as well, with private providers such as LaunchCode and General Assembly providing coding courses, and facilitating work placements, in order to meet the insatiable demand for coding and web development expertise within the US.

Clearly, in the context of the US, the mammoth size of the HE sector with its many thousands of providers allows for market correction, development and competition on a grand scale.  In the context of New Zealand, the sustainability of eight large, internationally-ranked universities, a struggling polytechnic sector, and a largely diffuse cohort of independent training-providers, is ripe for disruptive innovation.

The NZ market needs a more secure foundation of regulation and guidance within which the various levels of HE can operate and innovate. Digital innovation in all sectors, including pedagogical development, is a tool in the development of a mandate and mission. In the absence of the latter, either regulatory or institutionally-created, digital innovation can be seen as the answer to an unidentified problem, giving rise to increased chaos over clarity in the operation of the system.

Imperatives and Meta-narratives

For clarity in thinking, I think it best to divide imperatives from meta-narratives.

Community and global imperatives include global justice, sustainability, ideological intolerance, economic development, and multiple crises in biodiversity. These contribute to the creation of the meta-narratives of equality, inequity, entrepreneurialism, social enterprise, and all facets of sustainability.

While the provision of education for the purpose of fulfilling employment is important, and goes someway to fulfilling one imperative (economic development), it is certainly not the only pressing imperative of our time nor is it the only way in which education can contribute to their advancement.

In my travel, addressing imperatives separate to skill-provision and employability appeared largely isolated from the more traditional structures of university operation. Occasional niche programmes looking at systems thinking or complexity theory certainly exist, but little action has occurred for such programs to happen at scale.

Grand-challenge funding is starting to gain traction. But again, only a few universities are even contemplating novel ways of reconstructing the traditional Newtonian system of departments, programmes, faculties and colleges beyond traditional disciplinary lines.

What is needed is the servicing of more imperatives through the engagement of meta-narratives at scale. In this regard, I was most impressed by the Association for the Advancement of Sustainable Development in HE (Philadelphia). Their system for the nurtured development of university sustainability means that institutions wanting to advance sustainability, not only in their operation but also in their teaching, research and outreach, are no longer alone in doing so.

From systems of top-down control, the creation of separate unencumbered university hubs/labs/incubators, to the seeding of bottom-up transformation, change comes in many shapes and sizes. Within the US, the size and diversity of the HE sector means that many institutions feel safe to sail above the challenges facing the sector as a whole, while others stand either ignorant or unable to move.

For a small band of universities however, which recognize the challenges and the opportunities of our times, great advancement has come in the development of the global university 1.5.

Our challenge, I suggest, is to envision the 2.0 of our sector in which the employment of education for the resolution of the imperatives, grand challenges, and meta-narratives of our time can be woven, at scale, into the fabric of our systems.

Our future requires HE to not only produce work read graduates, but also graduates skilled in the ability to change our community and global paradigms.

Prof Chris Gallavin is Deputy Pro-Vice Chancellor at Massey University, and a member of the Centre’s Board.